Precious Metals News Roundup

Week of September 30- October 4, 2019

Global Slowdown Spreads Across U.S. Economy

Economists lower third-quarter growth estimates after household spending nudged up 0.1% in August

By Sarah Chaney and Paul Kiernan Updated Sept. 27, 2019 4:30 pm ET

Consumers slowed spending and businesses cut back on investment in August, signs that a wobbling global economy and rising tariffs are sapping U.S. economic momentum.

Personal-consumption expenditures, or household spending, edged up a seasonally adjusted 0.1% in August from July, the Commerce Department said Friday.

 

The modest growth marked a sharp pullback from the first seven months of the year, when spending rose an average of 0.5% a month.

American consumers had been a bright spot in the economy. But weaker August spending showed consumers might be succumbing to some of the external headwinds that have shaken businesses and manufacturers for months.

Slowing global growth, fading effects from the 2017 tax cut and rising trade frictions are weighing on the U.S. economy.

“The domestic economy is not immune to all these headwinds,” said Lydia Boussour, U.S. economist at Oxford Economics. “The economy is gradually cooling.”

Consumer spending is the driving force behind the U.S. economy, accounting for more than two-thirds of total economic output. Another key source of demand in the economy, business investment, continued a stretch of weakness in August, according to a separate report Friday. Orders for long-lasting equipment and machinery, a proxy for business investment, fell 0.2% last month from July and 1.7% from August 2018.

Though some economists said Friday’s report exaggerated the extent of weakness among consumers, the pullback in consumer outlays and business investment bode poorly for third-quarter economic growth.

Economists lowered their estimates of third-quarter economic growth in the wake of spending and other data released Friday. Macroeconomic Advisers’ closely watched model for gross domestic product showed growth slowing to 1.7% in the third quarter, down from a previous estimate of 2.2%. Pantheon Macroeconomics, meanwhile, cut its forecast for third-quarter consumer-spending growth to 2.9% from 3.6%.

ther economists pointed to evidence that consumers remain on relatively solid footing. Much of the slowdown in consumer outlays in August could be traced to lower energy prices, which magnified a pullback in spending on gasoline and other energy goods. Expenditures on services slowed only modestly, while outlays on long-lasting consumer goods such as cars and furniture picked up.

“Furnishings and household durables are something that consumers tend to spend on when they feel relatively confident,” said Sonia Meskin, a senior economist at Standard Chartered.

For Ann Wingrove, president of Frankfort, Ky.-based gift shop Completely Kentucky, demand is still solid. Her store’s sales have increased about 9% this year compared with last as more customers trickle in to buy pottery and gift baskets. But tariffs are creating uncertainty about the future.

“I’m very concerned about consumer spending and how these tariffs are going to affect that,” she said.

Completely Kentucky received notifications from one vendor, a Kentucky-based silk scarf artist, suggesting the gift store should make purchases before a 25% tariff for silk from China hits. If the scarf prices go up, Ms. Wingrove fears Completely Kentucky will have to raise prices and sell fewer scarves.

“I’m heavily staffed now, so I am very concerned if our sales drop I will have to lay people off,” she said.

Other indications point to conditions supportive of consumer spending. Incomes grew 0.4% in August from a month earlier, led by a 0.6% jump in employee compensation. Annual inflation also remained low, undershooting the Federal Reserve’s 2% target.

Consumer sentiment, a measure of household sentiment released Friday by the University of Michigan, rose to 93.2 in September, up from August’s 89.8, though it was down 6.9% from September 2018. That represents the largest year-over-year drop since April 2016.

Richard Curtin, the survey’s chief economist, said the September numbers showed a slow erosion but were still quite favorable.

The outlook for consumers remained cloudy, as the Trump administration hit a new array of consumer products imported from China with higher tariffs at the beginning of this month.

Trade tensions are one reason businesses took a more cautious approach in the second quarter. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—fell at a 1.0% rate, compared with a 4.4% rise in the first three months of the year.

Buffett's Deception On Gold

Bert Dohmen Contributor - September 28, 2019 - Forbes

Warren Buffett is not a fan of gold. In his annual letter to investors earlier this year he wrote:

 Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods.

That’s 40,000%!  Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To ‘protect’ yourself, you might have eschewed stocks and opted instead to buy [3.25] ounces of gold with your $114.75 [Buffet’s first investment 77 years ago].

And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business.

The magical metal was no match for the American mettle. [$114.75 would have grown to $606,811 if invested in a no-fee index fund tracking the S&P 500.]

My view:  Buffett’s example is deceptive. It examines the performance over the last 77 years, whereas the gold price was in fact fixed by U.S. law until 1975, almost half of that time period. Is that an honest comparison?

So let’s see what gold did since 2001 when I gave a renewed long-term “buy” signal. In 1981, after gold had made its top above $800, I had predicted a 20-year bear market just when many gold bulls predicted a run to $3,000. It happened!

Gold plunged to about $250 by year 2001. At that time, no one even wanted to hear the word “gold.” Bearish sentiment was at extreme highs.

As you can see, gold far outperformed the S&P 500 since 2001. Buffett uses arbitrary dates, similar to many stock analysts who want to make a point against gold. They pick the dates that give them the results they want. It is disappointing.

I picked 2001 as a starting point according to my long-term signals, which indicated a bottom had been made at that time.

One analyst on financial TV recently said that “gold has been a horrible investment.” He didn’t give a time frame. Obviously, looking at gold’s recent performance, he is totally wrong. He manages stock portfolios.

Is gold competition for managed accounts in stocks? It shouldn’t be because it is an asset class, which have performed very well for my HedgeFolios membership program (not a managed account, which I don’t offer) this year.

However, there are times when an investor might want to sell when conditions are ripe for a sharp intermediate-term decline that may take months. During the 2008 global crisis, the VanEck Vectors Gold Miners ETF (GDX) plunged 72% during eight months, while gold declined 31%.

That showed that when hedge funds dump assets during the start of a bear market in order to raise cash, they also sell this sector.

But then both recovered nicely over the next three years.

When comparing gold performance, let’s use a broader index than the S&P 500, such as the NYSE Composite (blue line).  Here is the chart of both. The outperformance of gold is even greater than against the S&P 500, about 3:1.

Also note that with bullish sentiment at extreme high levels, this is probably not the best time to buy gold for a while. If you missed the latest big upturn, it might be good to wait. There will be better opportunities.

Some speculators like more excitement in their trades, such as cryptocurrencies, which go up or down 20%-30% in 24 hours. In exchange for your money you get a computer entry, nothing tangible.

Eventually, these cryptos will be regulated out of existence. The central banks can’t tolerate private entities overtaking its role of creating money out of thin air. I prefer something the central banks of the world buy many tons of: gold.

On a quarterly basis, central banks increased their purchases of gold immensely in the first quarter of 2019. The World Gold Council reports that first-quarter 2019 purchases were the highest in six years, rising 68% above the year-ago quarter.

Early this year the World Gold Council reported that central banks around the globe bought the most gold in 2018 in over 51 years. According to the report, last year central banks bought 651 tonnes (metric) of gold. That is an increase of 74% from 2017.

The biggest buyers were China and Russia.

Gold will become the most desirable asset when the central banks restart their QE (quantitative easing) programs in order to avoid devastating recessions. The purchasing power of money will be eroded significantly.

The central banks are already pushing bond yields below zero with more than $17 trillion of bonds yielding below that level. That means the buyer of these bonds actually pays interest instead of receiving it.

That is the first time in 5,000 years of civilization that this experiment has been tried. It won’t end well!

The dangers of negative yields are recognized by the big smart money. Therefore, numerous countries are now buying large amounts of gold.

 

Conclusion: Chart readers will recognize that the above charts are long-term bullish. However, no market goes up in a straight line. Major upside resistance levels are ahead and will probably produce a sharp setback to chasten the perma-bulls.

The role of corrections in gold are to “shake the tree,” i.e. to separate weak holders from their holdings.

For many investors, it may be a good idea to have two portfolios:

  1. One longer-term hold portfolio

  2. One shorter-term timing portfolio to take big profits when everyone is bullish as now, and buy when bearishness is everywhere.

 

Most people cannot withstand sharp corrections and usually sell out at the bottom. That’s why often, depending on the individual, it is better to get out when technicals call for it, and get back in at lower prices. Only very experienced analysts can do that.

You will certainly not make 50% every 2.5 months in gold stocks, but you will be confident that gold-related investments will be a better asset for the very long term at this part in the cycle. If you buy it near the end of a correction, you can do even better.

I always look for investments that have something of value. It let’s me sleep at night.

Fear a recession? Here’s 3 reasons why the rising gold price could help

Peter Stephens | Sunday, 29th September, 2019

The risks facing the world economy appear to be intensifying. The trade war between the US and China has gradually increased in terms of its size and scale, while Brexit is now a matter of weeks away. Furthermore, the outlook for the European economy remains precarious, while China and the US are forecast to post slower growth in 2020 than in 2019.

All of this could mean that investors become increasingly downbeat about the prospects for the world economy. This could lead to a volatile period for the stock market, while it may also mean that the gold price continues to move higher.

Here’s why that trend could continue, and why buying into the rising gold price could prove to be a shrewd move.

Store of wealth

History shows that gold has been a store of wealth for many centuries. During the most challenging economic periods, gold has often been in high demand. This has led to it offering a lower positive correlation with the wider economy’s performance than many other mainstream assets.

Due to the aforementioned risks facing the world economy, the gold price has moved significantly higher during the course of 2019. It now trades 17% higher than it did at the start of the year. Since it had failed to rise over the previous four years, this suggests that demand for gold has spiked in recent months.

If the risks to the global economy remain high, gold could realistically trade much higher than it does today. In fact, when fears surrounding the world economy’s prospects were elevated in 2011 it traded 23% higher than it does today.

Interest rate falls

One factor that limited the rise in the gold price prior to 2019 was an increasingly restrictive US monetary policy. Since the US economy was delivering improving levels of performance, its interest rates were increased. This inhibited the gold price, since it became less appealing when compared to income-producing assets such as bonds and cash.

Now, though, investors expect the US to cut interest rates instead of increasing them. This could mean that gold gradually becomes increasingly attractive when compared to income-producing assets, which may lead to a rising gold price over the medium term. This could mean that if the economic outlook remains uncertain, interest rate cuts catalyse the gold price.

Valuations

Even though the gold price has risen sharply in 2019, a number of major gold miners continue to offer good value for money. Therefore, they could deliver high long-term returns to investors – even if the world economy goes on to generate a high rate of growth.

As such, having exposure to the gold price through owning a diverse range of gold miners appears to be a sound move. It could help to protect your portfolio against the threat of a recession, as well as offer long-term upside.

UBS Doubles Down On Gold — Ups Its Forecast Again!

Simon Constable Sep 30, 2019, 02:17pm Forbes

The usually-conservative Swiss bank UBS has upped its forecast for the price of gold for the second time in less than two months.

Now it says the price for the yellow metal could reach as high as $1,730 a troy ounce next year, up $50 from an August forecast, a recent UBS report states. The note last month pointed to the possibility of $1,680 over the same timeframe.

If gold did soar that far it would be 17% above the recent price of $1,469.

The UBS report explains:

 

  • “An environment of negative and lower-for-longer real rates, slowing growth with downside risks, and elevated uncertainty strengthens the case for holding strategic gold allocations.”

 

The bullish move comes after a brutal September where the price tumbled from a high around $1,553.

Negative interest rates are only a part of the bullish case, UBS says.

UBS also points to the fact that gold prices are not whipsawing around. Instead they appear to be moving in measured steps, albeit downwards lately.

The report notes that ETF holdings, such as those in the SPDR Gold Shares (GLD) have been growing steadily.

For instance, the Gold Shares fund held 890 metric tons of the metal at the beginning of September versus 923 tons on Friday, according to the GoldShares website.

The other bullish blessing is that most of the investor love for the metal has not come from individual investors. Individuals are well-known for buying and selling assets of any kind at precisely the wrong time. That means that their relative absence from gold investing is a good thing for investors who want to see the price of bullion rally.

“[...] participation so far has largely been limited to institutional investors and the official sector,” the report says.

The official sector usually refers to central banks such as the Russian Central Bank.

A further boost could come from China the report says.

 

Risks?

There are risks, according to the UBS report.

Notably, the U.S.-China trade war could get resolved, interest rates could rise, and the global economy could improve, the report explains.

Silver Investing Hits Record, Bullion Trading Jumps 82%

Adrian Ash - Bullion Vault - October 1, 2019

Gold prices this September touched new all-time highs for UK and Euro investors, and it averaged the highest daily price in US Dollar terms since March 2013, rising 0.8% to reach $1511 per ounce despite falling hard as the month ended.

 

Silver prices hit their highest month-average in 3 years, adding over 6.0% to reach $18.17 in US Dollar terms and – like gold – rising for the 4th month in a row despite Monday's drop.

 

The volatility across precious-metal prices saw daily trading volumes on BullionVault – the largest online and mobile-app marketplace for private investment in physical gold, silver and platinum – average £4.1 million, up 82.0% from the No.1 platform's prior 12-month average.

 

The number of people ending the month with more gold than they started slipped 8.6% from August's spike to the most since Donald Trump's US election victory in November 2016.

 

But the number of net sellers fell three times faster, down 26.5%. Together that pushed the Gold Investor Index – a unique measure of actual trading decisions in physical gold – up from 55.2 to 56.0, the highest reading in 13 months.

2019's jump in precious-metals investing is strongest in the Eurozone, where interest rates are most negative. The crash of DotCom Bubble 2.0 is also putting a shine on physical bullion for private investors.

 

Yes, September's count of first-time precious-metal investors fell from August's spike near a 3-year high, but it remained 60.7% above the prior 12-month average.

 

Eurozone residents again showed the strongest new interest, up 72.6% from the prior 12-month average versus a rise of 43.2% in the UK and a slip of 0.9% in the US.

 

Euro investors also led the jump in net demand for silver, which rose to 21.2 tonnes to set the largest monthly total since BullionVault added the metal to its trading platform in January 2010, five years after opening with gold.

 

That took the quantity of silver vaulted and insured for users to a new record above 802 tonnes, held in each client's choice of London, Singapore, Toronto or Zurich.

 

September's gold demand was also positive by weight, with BullionVault users buying 73.9kg as a group net of selling. That took the total quantity of gold vaulted and insured across those same locations plus New York up to a 4-month high of 38.3 tonnes.

Silver prices extended summer 2019's spike in early September to touch the highest since 2016 at $19.65 per ounce, before retreating $2.40 by month's end.

 

That volatility saw the number of people starting or adding to their silver holdings across the month slip 4.7% from August's 3-year high, but the number of sellers fell harder – shrinking by 15.9% from the previous month's 2.5-year peak.

 

Together that pushed the Silver Investor Index up from 54.9 to 55.9, a new 2-year high.

 

How does BullionVault trading compare with other markets for gold and silver?

 

Data from the US Mint meantime suggests that household demand for new gold or silver bullion coins remains weak, falling on September's price rise to barely one-quarter the level of the same month last year.

 

Gold jewellery demand is also struggling to digest these high prices in the giant consumer markets of China and India.

 

Among global investors wanting more cost-efficient exposure, silver's largest bullion-backed ETF – the iShares Silver Trust (NYSEArca: SLV) – saw net liquidation of 1.6% in September. 

 

But like BullionVault, gold-backed ETFs also saw another month of inflows, taking their total backing very close to 2012's record and putting the 4-month inflow at its largest since early 2009, the depths of the US stock market's banking-crisis crash.

 

Indeed, gold-backed ETF investment has now absorbed 1 ounce in every 3 mined worldwide since the start of June according to data compiled and updated by the World Gold Council.

 

Bottom line? Widening political fractures make a strong case for spreading risk with gold, but the looming burst of fiscal stimulus plays to the pro-cyclical appeal of silver.

 

Silver, heavily used by industry and traded in a market only one-tenth the size of gold's, has also been used to exchange and store value for thousands of years.

 

Judging by September's activity on BullionVault – marketplace for the single largest pool of Western private investors in physical precious metals – a rising number of people expect that financial use to keep growing.

Gold prices could soar to $2,000 next year, says strategist

PUBLISHED THU, OCT 3 20192:25 AM EDT Eustance Huang

KEY POINTS

  • “Gold is a good alternative currency because it’s safe, and because it costs nothing to own it compared to paying negative rates on deposits,” said David Roche of Independent Strategy.

  • Gold prices could surge by about 30% to as high as $2,000 per ounce next year, Roche said. The price of spot gold currently stands at around $1,500 per ounce.

Gold prices could surge by about 30% to as high as $2,000 per ounce next year, according to David Roche, president and global strategist at Independent Strategy.

The price of spot gold currently stands at around $1,500 per ounce.

“What my gut says is that cause of the vilification of fiat currencies by central bankers, which is set to get worse — not better, people will look for an alternative currency,” Roche told CNBC’s “Squawk Box” on Thursday.

“Gold is a good alternative currency because it’s safe, and because it costs nothing to own it compared to paying negative rates on deposits,” Roche said.

As a result, gold prices will likely touch $1,600 before the end of this year, before moving higher to $2,000 next year, he said.

Roche’s comments come amid policy moves at major central banks in the past month.

The U.S. Federal Reserve slashed its benchmark overnight lending rate to a target range of 1.75% to 2% in September. The European Central Bank also cut its main deposit rate to a record low of -0.5% and launched a large new bond-buying program in the same month.

In Japan, where the short-term interest rate target is already in negative territory, the Bank of Japan signaled a chance of easing in October.

“We are more eager to act given heightening global risks. We will scrutinize economic and price developments thoroughly at next month’s meeting to decide whether to ease,” the central bank’s governor Haruhiko Kuroda told a news conference after the BOJ’s policy announcement in September.

Roche said central banks are now “quite rightly worried” about the next downturn after failing to achieve their inflation targets.

Instead of saying they’ve done enough, Roche said, central banks are saying, “Yes, we do need to spend lots of fiscal money but by the way, we can help. So actually, the government spends and we can supply the money. And we just run up bank balances between the two of us, which we can always write down.”

“That’s the new system now ... that I think is exactly what’s gonna happen,” Roche said. “That’s why I buy gold.”

— Reuters contributed to this report.

U.S. Payrolls and Wages Miss Estimates in New Sign of Downshift

By Katia Dmitrieva October 4, 2019, 5:30 AM PDT Updated on October 4, 2019, 7:48 AM PDT

U.S. hiring missed projections in September and wage gains cooled, offering a warning that the record-long expansion is poised for further slowing even as the jobless rate fell to a half-century low.

Private payrolls expanded by 114,000 after an upwardly revised 122,000 advance the prior month, according to a Labor Department report Friday that missed the median estimate of economists for a 130,000 gain. Total nonfarm payrolls climbed a below-forecast 136,000, which was boosted by 1,000 temporary government workers to prepare for the 2020 Census count.

Average hourly earnings rose 2.9% from a year earlier, the weakest in more than a year and missing estimates. The jobless rate unexpectedly dropped to 3.5%, the lowest since December 1969, from 3.7%.

Even with the shaky jobs and wage figures, traders of fed funds futures slightly reduced the amount of easing they expect from the U.S. central bank this year and marginally trimmed their expectations for an October cut amid a lower-than-expected unemployment rate. U.S. stocks rose and two-year Treasuries fell, while the dollar remained lower.

“Overall it is a bit of a mixed bag,” Torsten Slok, Deutsche Bank Securities chief economist, said on Bloomberg Television. But the main payrolls number along with weakness in manufacturing add to signs that the trade war is putting “downward pressure both on hiring and the economy.”

More broadly, the downbeat reading adds to signs President Donald Trump’s trade policy and weakness abroad pose an increasing threat to growth in the world’s largest economy. At the same time, the unemployment rate decline gave him a chance to boast, which he promptly did on Twitter minutes after the report, and was soon echoed by his economic adviser.

“There’s a lot of good data out there, and there’s some soft data,” Larry Kudlow, the head of the National Economic Council, said in a Bloomberg Television interview. “The headline number here is the 3.5% unemployment rate,” he said, citing gains by African Americans, Hispanics, and those without high school degrees.

The jobs report caps a week of U.S. economic data that whipsawed stocks and sent already-low Treasury yields tumbling, led by a key manufacturing gauge that sank deeper into contraction with the worst reading in a decade. A slowdown also threatens Trump’s re-election prospects next year, with the president frequently staking his message on a strong economy.

The data offer a contrast with characterizations by Fed Chairman Jerome Powell and his colleagues at recent meetings that job gains have been “solid,’’ though they may still have room to stick with that assessment. Late Thursday, Fed Vice Chairman Richard Clarida said the economy remains on solid footing and recession risks aren’t “particularly elevated under appropriate monetary policy.”

Powell is scheduled to deliver opening remarks at 2 p.m. in Washington at a Fed event, followed by comments from governors Lael Brainard and Randal Quarles.

Revisions were a bright spot, adding 45,000 jobs for the prior two months, though the three-month average still fell to 157,000 from 171,000.

The job gains were concentrated in health care and professional and business services. Retail employment contracted for an eighth-straight month, while construction payroll growth remained tepid.

Manufacturers subtracted 2,000 jobs, continuing a trend toward weaker growth. It likely reflects the slowdown at factories, seen also in data from the Institute for Supply Management, which points to slower production and orders amid weakening demand for goods.

Factory employment may be poised to fall further in coming months with General Motors Co. workers on strike. About 46,000 employees walked out Sept. 15, which was too late in the month to be captured in the Labor Department’s survey though may affect readings for October. At the same time, the strike may already be impacting wages and hours worked.

Average hourly earnings were little changed from the prior month, missing estimates for a gain, while the 2.9% annual wage gain fell below all estimates in Bloomberg’s survey of economists. Pay for production and nonsupervisory workers held up, though, with a gain of 3.5%, down only slightly from a decade-high of 3.6%.

Paycheck Squeeze

U.S. wage growth slowed to weakest pace in more than a year in September

The U-6, or underemployment rate, slipped to 6.9%, the lowest since 2000, from 7.2%. Some analysts see this as a more accurate reflection of the labor market as it includes part-time workers who’d prefer a full-time position and those who aren’t actively looking.

Economists surveyed by Bloomberg had projected 145,000 new jobs with the unemployment rate remaining at 3.7% and average hourly earnings rising an unchanged 3.2%.

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